Closer look at benefits

We usually hear about a job "with benefits" and understand that it involves various perks beyond just a paycheck. But do you know how these benefits work and influence your personal and financial health? Suppose you are already familiar with common benefits like health insurance, retirement plans, and paid time off. In that case, this guide will further explore these perks and show their real-world impact. We'll break them down with examples, helping you understand their full value and how to maximize their usage.

Health insurance is an important benefit provided by various employers. It covers the costs of your medical, surgical, prescription drugs, and sometimes even dental expenses. While there are some employers who fully pay for health insurance, it is most often some sort of split-pay arrangement: you pay a small portion, and your employer pays a much bigger portion.

For example, consider a health insurance plan that costs $\mathrm{\$}500$‍ monthly. It's common to have employers cover up to $70\mathrm{\%}$‍ of this cost. This means, your employer pays $\mathrm{\$}350$‍ each month, while you contribute $\mathrm{\$}150$‍.

As an added benefit, your $\mathrm{\$}150$‍ portion is usually a pre-tax contribution. This means it lowers your overall taxable income, and you pay less in taxes later.

Retirement benefits frequently come in the form of 401(k) plans. 401(k) is just the name of a special retirement account that your employer opens up for you and lets you add money to it automatically. This saves you a lot of time and trouble of having to do it on your own. Contributions to this plan are also pre-tax, lowering your taxable income. Some employers also 'match' your contributions up to a specific percentage.

Suppose you are making $\mathrm{\$}\mathrm{60,000}$‍ annually and decide to contribute $6\mathrm{\%}$‍ to your 401(k). That's $\mathrm{\$}\mathrm{3,600}$‍ every year. If your employer matches your contributions up to $6\mathrm{\%}$‍, they also add $\mathrm{\$}\mathrm{3,600}$‍ to your retirement savings each year. That's like doubling your money by getting free money!

Paid-time-off simply means being away from work but still getting paid. The most common forms of PTO are sick leave and vacation pay.

Sick leave allows you to take time off when you're unwell without losing pay. For example, if a terrible flu hits you and you can't work for three days, sick leave ensures you still receive regular pay for these three days.

Vacation pay is a benefit that pays you for your time off. Let's say you're planning a week-long getaway to a tropical beach. If you've earned enough days of vacation pay, you go on your trip and get your usual pay even though you're thousands of miles away from your desk soaking up the sun.

A Flexible Spending Account (FSA) allows you to dedicate pre-tax dollars to healthcare expenses. It is another account, similar to 401(k), that your employer opens up for you and lets you add to it automatically.

For example, you elect to contribute $\mathrm{\$}\mathrm{2,400}$‍ to your FSA for the year. In an unexpected turn, you need glasses costing $\mathrm{\$}500$‍. You can use your FSA funds to purchase these glasses, essentially making it a tax-free purchase. You can also use it to pay for childcare expenses, from daycare to summer camps.

While this account can be very beneficial, you should also know that you usually must use the money in the FSA within the plan year, or you risk losing the funds. This is often called the "use it or lose it" rule. If you do not use up your funds within a year, they disappear and you start the new year with $\mathrm{\$}0$‍ balance.

A Health Savings Account (HSA) is an account you can contribute to, tax-free, for medical expenses. The money you deposit into this account can be used to pay for eligible health care expenses, but unlike an FSA, the money in an HSA does not expire. Any money you don’t spend in a given year can be rolled over to the next year. The HSA account is typically used by people who have high- health insurance plans.

Considering a situation where you contribute $\mathrm{\$}\mathrm{1,500}$‍ to your HSA at the beginning of the year, but end up spending only $\mathrm{\$}500$‍ on medical expenses. The remaining $\mathrm{\$}\mathrm{1,000}$‍ rolls over to the next year, meaning you start year two with $\mathrm{\$}\mathrm{1,000}$‍ in your account.

Workers' compensation is an insurance that provides wage replacement and medical benefits if you're injured on the job. Your employer pays for this insurance entirely.

Let's assume you were hurt at work, resulting in a hospital bill of $\mathrm{\$}\mathrm{10,000}$‍. The workers' compensation benefit would cover this expense, so you wouldn't have to spend a dollar from your pocket. You may also receive a portion of your paycheck while you are recovering.

Your employer may pay for a small life insurance policy at no cost to you. This policy, typically, equals the amount of your yearly salary. You may purchase more coverage at very low rates, but you should also know that the coverage ends the moment you leave your employer.

The way this insurance works is: in case you pass away, your family would receive a check from the insurance company in the amount of the coverage that was selected. If you have a $\mathrm{\$}\mathrm{50,000}$‍ salary and you elected 2x salary, your family would receive $\mathrm{\$}\mathrm{100,000}$‍ check. This money can help cover anything from funeral expenses to ongoing living costs.

Disability insurance provides income protection if you become disabled and are not able to work for an extended period. Basically, it ensures that you will still receive some income even when you're unable to perform your job. Employers sometime pay for long-term disability insurance, but ask you to cover short-term disability premium costs.

For example, if an accident leads to a disability that prevents you from working for a year, your disability insurance will kick in. The accident does not need to be work related - you just have to be unable to work for insurance to pay you. Depending on your specific plan, it might offer you up to $60\mathrm{\%}–70\mathrm{\%}$‍ of your regular income during your recovery period.

It's important to realize these benefits are usually optional and you have to enroll in them. Typically, you enroll in these benefits when you get hired. The hiring manager will provide you with a website where you can choose which benefits you'd like, and you will see how much your portion of the cost would be. Once these are set up, the payment for them will be taken out of your paycheck automatically.

If you did not choose benefits when you were hired, you can still get benefits through the open enrollment or a qualifying event.

Open enrollment or annual enrollment window, is like a special 'choose-your-benefits' time at your job. It usually happens once a year. During this time, you can pick or change your job benefits like health insurance or retirement plans. If you miss this time, you usually have to wait until next year to make changes.

Qualifying events are big changes in your life, like if you get married, have a baby, or if you or a family member lose health insurance coverage. When these changes happen, you don't have to wait for the open enrollment time at your job. You can change your benefits right away to make sure you and your family have what you need. These changes are very important and could affect what kind of benefits you choose.

Make sure you fully understand the benefits package your employer offers, as it can make a big difference in your overall compensation.